Keynesians

Keynesians would like putting money in the hands of the poorest households, which are most likely to spend it — but less excited about giving it to wealthier households that are more likely to save it.

At the same time, Keynesians began during the period to reorganize their thinking (some becoming associated with New Keynesian economics ).

Both Monetarists and Keynesians are in agreement over the fact that issues such as business cycles, unemployment, and deflation are caused by inadequate demand.

However, even in the early years, post-Keynesians such as Joan Robinson sought to distance themselves from Keynes and much current post-Keynesian thought cannot be found in Keynes.

In late 1965 Time magazine ran a cover article with a title comment from Milton Friedman (later echoed by U.S. President Richard Nixon ), " We are all Keynesians now ".

In particular, New Keynesians assume prices and wages are " sticky ", which means they do not adjust instantaneously to changes in economic conditions.

In this situation, Keynesians recommend policies that raise the aggregate demand for final products and thus the aggregate demand for workers.

Keynesians argue that fiscal policy —tax cuts or increased government spending—works when monetary policy fails.

Keynesians emphasized the dependence of consumption on disposable income and, also, of investment on current profits and current cash flow.

Keynesians emphasize reducing aggregate demand during economic expansions and increasing demand during recessions to keep inflation stable.

Macroeconomists became more skeptical of Keynesian theories, and Keynesians themselves reconsidered their ideas in search of an explanation for stagflation.

So successful were these criticisms that by 1980 Robert Lucas claimed economists would often take offence if described as Keynesians.

While this idea was a severe criticism of early Keynesian theories, it was gradually accepted by most Keynesians, and has been incorporated into New Keynesian economic models.